Stocks Give Up Early Gains on Weakness in Chip Stocks

The S&P 500 Index ($SPX) (SPY) this morning is down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.55%. 

US stock indexes this morning gave up an early advance and turned lower, with the S&P 500 and Nasdaq 100 falling to 1-3/4 month lows.  Chip stocks are under pressure today and are weighing on the overall market after ASML Holding NV reported Q1 net sales below consensus.

Also, on the negative side for stocks, JB Hunt Transport Services is down more than -8% after reporting Q1 EPS below consensus.  Travelers is down more than -8% after reporting weaker-than-expected Q1 core EPS. Autodesk is down more than -7% after saying it won’t file its annual report within the 15-day extension period as it continues investigating free cash flow and non-GAAP operating margin practices. 

On the positive side, United Airlines Holdings is up more than +11% after reporting a smaller-than-expected Q1 adjusted loss per share and forecasting stronger-than-expected Q2 adjusted EPS.  Also, Alcoa is up more than +3% after Bloomberg reported that President Biden will propose higher tariffs on Chinese steel and aluminum during a visit to Pittsburgh. 

Geopolitical risks in the Middle East continue to be a negative factor for stocks on concern Israel will retaliate after Iran fired a barrage of missiles and drones into Israel over the weekend.

US weekly MBA mortgage applications rose +3.3% in the week ended April 12.  The purchase mortgage sub-index rose +5.0%, and the refinancing sub-index rose +0.5%.  The average 30-year fixed rate mortgage rose +0.12 bp to a 4-month high of 7.13% from 7.01% in the prior week.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 16% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.17%.  China's Shanghai Composite climbed to a 1-week high and closed up +2.14%.  Japan's Nikkei Stock Index fell to a 2-month low and closed down -1.32%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +7 ticks.  The 10-year T-note yield is down -4.7 bp at 4.620%.  June T-notes this morning are mildly higher on some carryover support from gains in European government bonds.  The upside in T-notes is limited by supply pressures ahead of the Treasury’s $13 billion auction of 20-year T-bonds later today. 

European government bond yields today are lower.  The 10-year German bund yield is down -1.8 bp at 2.468%. The 10-year UK gilt yield fell back from a 5-month high of 4.331% and is down -2.4 bp at 4.274%.

ECB Executive Board member Cipollone said should incoming data confirm that inflation is returning to the 2% target, "it would be appropriate to remove some of the restrictive measures that we put in place in 2023."

ECB Governing Council member Centeno said, "It's time for the ECB to change this monetary policy" due to weak economic growth and progress on disinflation. 

ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June, citing the results of Eurozone pay discussions and rising tensions in the Middle East that pose risks for inflation.

US Stock Movers

JB Hunt Transport Services (JBHT) is down more than -9% to lead losers in the S&P 500 after reporting Q1 EPS of $1.22, well below the consensus of $1.53. 

Travelers Cos (TRV) is down more than -8% to lead losers in the Dow Jones Industrials after reporting Q1 core EPS of $4.69, below the consensus of $4.90. 

Autodesk (ADSK) is down more than -8% to lead losers in the Nasdaq 100 after saying it won’t file its annual report within the 15-day extension period as it continues investigating free cash flow and non-GAAP operating margin practices. 

Weakness in chip stocks is weighing on the overall market after ASML Holding NV reported Q1 net sales of 5.29 billion euros, weaker than the consensus of 5.47 billion euros.  As a result, ASML Holding NV (ASML) is down more than -7%.  Also, Applied Materials (AMAT), KLA Corp (KLAC), and Lam Research (LRCX) are down more than -3%.  In addition, Nvidia (NVDA), Advanced Micro Devices (AMD), and Intel (INTC) are down more than -1%. 

US Bancorp (USB) is down more than -4% after cutting guidance on its full-year net interest income estimate to $16.1 billion-$16.4 billion from a previous estimate of $16.6 billion-plus.

Urban Outfitters (URBN) is down more than -2% after Jeffries downgraded the stock to underperform from hold with a price target of $32. 

Airline stocks are rallying today after United Airlines reported a Q1 adjusted loss per share of -15 cents, a smaller loss than the consensus of -57 cents, and forecasted Q2 adjusted EPS of $3.75-$4.25, stronger than the consensus of $3.73.  As a result, United Airlines Holdings (UAL) is up more than +11% to lead gainers in the S&P 500.  Also, American Airlines Group (AAL) is up more than +3%.  Delta Air Lines (DAL) and Southwest Airlines (LUV) are up more than +2%.

Dayforce (DAY) is up more than +4% after the Canadian government allocated C$135 million for fiscal 2024/25 to improve its pay systems and Procurement Canada recommended Dayforce to replace the existing payroll system. 

GE Vernova (GEV) is up more than +3% after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $160.

Alcoa (AA) is up more than +3% after Bloomberg reported that President Biden will propose higher tariffs on Chinese steel and aluminum during a visit to Pittsburgh.   

UnitedHealth Group (UNH) is up more than +2% to lead gainers in the Dow Jones Industrials, adding to Tuesday’s +5% gain after reporting stronger-than-expected Q1 revenue on Tuesday. 

Eli Lilly (LLY) is up more than +1% after it said its Zepbound weight-loss drug helped sleep apnea symptoms in studies.

Omnicom Group (OMC) is up more than +1% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $106. 

Earnings Reports (4/17/2024)

Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Las Vegas Sands Corp (LVS), Prologis Inc (PLD), Travelers Cos Inc/The (TRV), US Bancorp (USB).

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